Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations, our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors including those described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Our actual results may differ materially from those contained in any forward-looking statements. You should read the following discussion together with our audited consolidated financial statements and related notes thereto and other financial information included in this Annual Report on Form 10-K.
Our financial information may not be indicative of our future performance.
Executive Overview
Demand for our field talent and consultants as well as placement services is dependent upon general economic and labor trends. We believe that the Company is well positioned in the current macroeconomic environment. The United States economic backdrop during 2019 was positive as real gross domestic product (“GDP”) grew an estimated 2.3%, while the unemployment rate declined from 3.9% in December 2018 to 3.5% in December 2019 recording to the U.S. Bureau of Labor Statistics. In the United States, the number of job openings has exceeded the number of hires since February 2015, creating competition for skilled talent that increases our value to client partners. The U.S. labor market remains robust, with significant demand due to talent shortages across our disciplines, where unemployment remains near a 50-year low.
Despite strong job growth over the last three months, there remains uncertainty in the market around the impact and duration of the Coronavirus outbreak. While the outbreak of the virus began late in 2019, our results of operations for fiscal year 2019 do not include any material impact from this.
Disruptions to business operations resulting from travel restrictions and possible quarantines of our team members, field talent, client partners and suppliers in areas affected by the outbreak, as well as possible closures of offices, manufacturing facilities, warehouses and logistics supply chains, could have a material adverse impact on our financial condition and results of operations for an uncertain duration.
The impact of the outbreak on the labor market will depend on the amount of time it disrupts economic activity. The impact over the next few months may be reflected in a drop in hours worked and reduced hiring. However, if the disruption continues longer, then impacted companies are likely to reduce their workforce, including layoffs, especially of less skilled workers.
No determination of such impact on our financial condition or results of operations can be made at this time.
Company Overview
We are a leading national provider of professional workforce solutions and have completed a series of acquisitions including the acquisition of BG Personnel, LP and B G Staff Services Inc. in June 2010, substantially all of the assets of JNA Staffing, Inc. in December 2010, Extrinsic, LLC in December 2011, American Partners, Inc. in December 2012, InStaff in June 2013, D&W in March 2015, VTS in October 2015, Zycron in April 2017, Smart in September 2017, LJK in December 2019, and 100% of the equity of EdgeRock in February 2020. We operate within three industry segments: Real Estate, Professional, and Light Industrial. We provide services to client partners primarily within the United States of America. We now operate through 83 branch offices and 15 on-site locations located across 43 states and D.C.
The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 29 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.
The Professional segment provides skilled field talent on a nationwide basis for information technology (“IT”) and finance, accounting, legal and human resource client partner projects.
The Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce in 7 states.
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of revenues, and have been derived from our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 29,
2019
|
|
December 30,
2018
|
|
December 31,
2017
|
|
|
|
52 week
|
|
52 week
|
|
53 Week
|
|
|
|
(dollars in thousands)
|
Revenues
|
|
$
|
294,314
|
|
|
$
|
286,863
|
|
|
$
|
272,600
|
|
Cost of services
|
|
213,633
|
|
|
210,268
|
|
|
204,198
|
|
|
Gross Profit
|
|
80,681
|
|
|
76,595
|
|
|
68,402
|
|
Selling, general and administrative expenses
|
|
56,199
|
|
|
51,066
|
|
|
44,576
|
|
Gain on contingent consideration
|
|
—
|
|
|
(3,775
|
)
|
|
(226
|
)
|
Depreciation and amortization
|
|
4,820
|
|
|
5,044
|
|
|
6,292
|
|
|
Operating income
|
|
19,662
|
|
|
24,260
|
|
|
17,760
|
|
Loss on extinguishment of debt
|
|
541
|
|
|
—
|
|
|
—
|
|
Interest expense, net
|
|
1,569
|
|
|
2,850
|
|
|
3,253
|
|
|
Income before income tax
|
|
17,552
|
|
|
21,410
|
|
|
14,507
|
|
Income tax expense
|
|
4,305
|
|
|
3,860
|
|
|
8,659
|
|
|
Net income
|
|
$
|
13,247
|
|
|
$
|
17,550
|
|
|
$
|
5,848
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
December 29,
2019
|
|
December 30,
2018
|
|
December 31,
2017
|
Revenues
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of services
|
|
72.6
|
|
|
73.3
|
|
|
74.9
|
|
|
Gross Profit
|
|
27.4
|
|
|
26.7
|
|
|
25.1
|
|
Selling, general and administrative expenses
|
|
19.1
|
|
|
17.8
|
|
|
16.4
|
|
Gain on contingent consideration
|
|
—
|
|
|
(1.3
|
)
|
|
(0.1
|
)
|
Depreciation and amortization
|
|
1.6
|
|
|
1.8
|
|
|
2.3
|
|
|
Operating income
|
|
6.7
|
|
|
8.5
|
|
|
6.5
|
|
Loss on extinguishment of debt
|
|
0.2
|
|
|
—
|
|
|
—
|
|
Interest expense, net
|
|
0.5
|
|
|
1.0
|
|
|
1.2
|
|
|
Income before income tax
|
|
6.0
|
|
|
7.5
|
|
|
5.3
|
|
Income tax expense
|
|
1.5
|
|
|
1.3
|
|
|
3.2
|
|
|
Net income
|
|
4.5
|
%
|
|
6.1
|
%
|
|
2.1
|
%
|
Fifty-two Week Fiscal Year Ended December 29, 2019 (Fiscal 2019) Compared with Fifty-two Week Fiscal Year Ended December 30, 2018 (Fiscal 2018)
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 29,
2019
|
|
December 30,
2018
|
|
|
(dollars in thousands)
|
Revenues by Segment:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
96,422
|
|
|
32.8
|
%
|
|
$
|
86,874
|
|
|
30.3
|
%
|
Professional
|
|
123,343
|
|
|
41.9
|
%
|
|
119,300
|
|
|
41.6
|
%
|
Light Industrial
|
|
74,549
|
|
|
25.3
|
%
|
|
80,689
|
|
|
28.1
|
%
|
Total Revenues
|
|
$
|
294,314
|
|
|
100.0
|
%
|
|
$
|
286,863
|
|
|
100.0
|
%
|
Real Estate Revenues: Real Estate revenues increased approximately $9.5 million (11.0%) due to our continued geographic expansion plan and overall growth in existing offices. The increase was due to a 5.1% increase in billed hours and a 5.1% increase in average bill rate. Revenue from new offices provided approximately $2.5 million of the increase. Revenues from the commercial buildings group contributed $0.8 million of the increase.
Professional Revenues: Professional revenues increased approximately $4.0 million (3.4%). The increase was due to an increase of 8.3% in average bill rate that was offset by a decrease in permanent placements of $0.1 million and a 5.7% decrease in billed hours.
Light Industrial Revenues: Light Industrial revenues decreased approximately $6.1 million (7.6%). The decrease was due to a 10.8% decrease in billed hours offset by a 3.5% increase in average bill rate.
Gross Profit:
Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, field talent costs, and reimbursable costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 29,
2019
|
|
December 30,
2018
|
|
|
(dollars in thousands)
|
Gross Profit by Segment:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
36,928
|
|
|
45.8
|
%
|
|
$
|
32,955
|
|
|
43.0
|
%
|
Professional
|
|
32,898
|
|
|
40.7
|
%
|
|
31,565
|
|
|
41.2
|
%
|
Light Industrial
|
|
10,855
|
|
|
13.5
|
%
|
|
12,075
|
|
|
15.8
|
%
|
Total Gross Profit
|
|
$
|
80,681
|
|
|
100.0
|
%
|
|
$
|
76,595
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 29,
2019
|
|
December 30,
2018
|
Gross Profit Percentage by Segment:
|
|
|
|
|
Real Estate
|
|
38.3
|
%
|
|
37.9
|
%
|
Professional
|
|
26.7
|
%
|
|
26.5
|
%
|
Light Industrial
|
|
14.6
|
%
|
|
15.0
|
%
|
Company Gross Profit Percentage
|
|
27.4
|
%
|
|
26.7
|
%
|
Overall, our gross profit increased approximately $4.1 million (5.3%). As a percentage of revenue, gross profit has increased to 27.4% from 26.7%, primarily due to higher gross profits across our Real Estate and Professional segments.
We determine spread as the difference between bill rate and pay rate.
Real Estate Gross Profit: Real Estate gross profit increased approximately $4.0 million (12.1%) consistent with the increase in revenue. The increase in gross profit was due primarily to 5.0% increase in average spread.
Professional Gross Profit: Professional gross profit increased approximately $1.3 million (4.2%) consistent with the increase in revenue. The increase in gross profit was due to 9.3% increase in average spread.
Light Industrial Gross Profit: Light Industrial gross profit decreased approximately $1.2 million (10.1%) consistent with the decrease in revenue which was offset by an increase of 2.2% in the average spread.
Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately $5.1 million (10.1%) primarily related to various costs associated with our revenue growth and geographic expansion including increased
headcount, commissions and bonuses as detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 29,
2019
|
|
December 30,
2018
|
|
|
|
|
|
|
Amount
|
|
% of Revenue
|
|
Amount
|
|
% of Revenue
|
|
$
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Compensation and related
|
|
$
|
41,401
|
|
|
14
|
%
|
|
$
|
38,756
|
|
|
14
|
%
|
|
$
|
2,645
|
|
|
7
|
%
|
Advertising and recruitment
|
|
1,925
|
|
|
1
|
%
|
|
1,915
|
|
|
1
|
%
|
|
10
|
|
|
1
|
%
|
Occupancy and office operations
|
|
3,987
|
|
|
1
|
%
|
|
3,685
|
|
|
1
|
%
|
|
302
|
|
|
8
|
%
|
Client engagement
|
|
1,443
|
|
|
—
|
%
|
|
1,270
|
|
|
—
|
%
|
|
173
|
|
|
14
|
%
|
Software
|
|
1,906
|
|
|
1
|
%
|
|
1,342
|
|
|
—
|
%
|
|
564
|
|
|
42
|
%
|
Professional fees
|
|
1,327
|
|
|
—
|
%
|
|
1,155
|
|
|
—
|
%
|
|
172
|
|
|
15
|
%
|
Public company related costs
|
|
675
|
|
|
—
|
%
|
|
524
|
|
|
—
|
%
|
|
151
|
|
|
29
|
%
|
Bad debt
|
|
128
|
|
|
—
|
%
|
|
41
|
|
|
—
|
%
|
|
87
|
|
|
212
|
%
|
Share-based compensation
|
|
953
|
|
|
—
|
%
|
|
1,069
|
|
|
—
|
%
|
|
(116
|
)
|
|
(11
|
)%
|
Transaction fees
|
|
434
|
|
|
—
|
%
|
|
508
|
|
|
—
|
%
|
|
(74
|
)
|
|
(15
|
)%
|
IT roadmap
|
|
721
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
721
|
|
|
100
|
%
|
Other
|
|
1,299
|
|
|
—
|
%
|
|
801
|
|
|
—
|
%
|
|
498
|
|
|
62
|
%
|
|
|
$
|
56,199
|
|
|
19
|
%
|
|
$
|
51,066
|
|
|
18
|
%
|
|
$
|
5,133
|
|
|
10
|
%
|
Depreciation and Amortization: Depreciation and amortization charges decreased approximately $0.2 million (4.4%). The decrease in depreciation and amortization is primarily due to fully amortized intangible assets in the Light Industrial segment
related to the 2013 InStaff acquisition and in the Professional segment related to the 2015 D&W acquisition.
Interest Expense, net: Interest expense, net decreased $1.3 million (44.9%) primarily due to the May 2018 offering of
common stock which proceeds were used to pay down on the existing indebtedness of the Company and the decrease in contingent consideration discounts related to the 2017 Zycron and Smart acquisitions.
Income Taxes: Income tax expense increased $0.4 million (11.5%) primarily due to the 2018 Option Cancellation Agreement
and the share-based compensation exercises that are deductible for tax purposes that resulted in a reduced 2018 effective rate,
which was partially offset by higher pre tax 2018 income.
Fifty-two Week Fiscal Year Ended December 30, 2018 (Fiscal 2018) Compared with Fifty-three Week Fiscal Year Ended December 31, 2017 (Fiscal 2017)
The Fiscal 2017 consolidated statement of operations includes 39 weeks of Zycron operations and 15 weeks of Smart operations.
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
|
(dollars in thousands)
|
Revenues by Segment:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
86,874
|
|
|
30.3
|
%
|
|
$
|
71,807
|
|
|
26.3
|
%
|
Professional
|
|
119,300
|
|
|
41.6
|
%
|
|
126,641
|
|
|
46.5
|
%
|
Light Industrial
|
|
80,689
|
|
|
28.1
|
%
|
|
74,152
|
|
|
27.2
|
%
|
Total Revenues
|
|
$
|
286,863
|
|
|
100.0
|
%
|
|
$
|
272,600
|
|
|
100.0
|
%
|
Real Estate Revenues: Real Estate revenues increased approximately $15.1 million (21.0%) due to our continued geographic expansion plan and continued growth in existing offices. The increase was due to a 14.0% increase in billed hours and a 5.3% increase in average bill rate. Revenue from new offices provided approximately $0.9 million of the increase. Revenues from the commercial buildings group contributed $2.7 million of the increase.
Professional Revenues: Professional revenues decreased approximately $7.3 million (5.8%). The Zycron acquisition contributed an additional $5.8 million and the Smart acquisition contributed an additional $8.4 million increase over 2017. The overall decrease was due to a 10.8% increase in billed hours and a decrease of 13.8% in average bill rate that was offset by an increase in permanent placements of $0.8 million.
Light Industrial Revenues: Light Industrial revenues increased approximately $6.5 million (8.8%). The overall revenue increase was due to a 2.6% increase in billed hours and a 6.4% increase in average bill rate.
Gross Profit:
Gross profit represents revenues from services less cost of services expenses, which consist of payroll, payroll taxes, payroll-related insurance, field talent costs, and reimbursable costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
|
(dollars in thousands)
|
Gross Profit by Segment:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
32,955
|
|
|
43.0
|
%
|
|
$
|
27,138
|
|
|
39.7
|
%
|
Professional
|
|
31,566
|
|
|
41.2
|
%
|
|
30,626
|
|
|
44.8
|
%
|
Light Industrial
|
|
12,074
|
|
|
15.8
|
%
|
|
10,638
|
|
|
15.5
|
%
|
Total Gross Profit
|
|
$
|
76,595
|
|
|
100.0
|
%
|
|
$
|
68,402
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 30,
2018
|
|
December 31,
2017
|
Gross Profit Percentage by Segment:
|
|
|
|
|
Real Estate
|
|
37.9
|
%
|
|
37.8
|
%
|
Professional
|
|
26.5
|
%
|
|
24.2
|
%
|
Light Industrial
|
|
15.0
|
%
|
|
14.3
|
%
|
Company Gross Profit Percentage
|
|
26.7
|
%
|
|
25.1
|
%
|
Overall, our gross profit increased approximately $8.2 million (12.0%) due primarily to increased revenues in our Real Estate segment of $5.8 million and our Professional segment's addition of Zycron of $1.4 million and Smart of $3.1 million. As a percentage of revenue, gross profit has increased to 26.7% from 25.1%, primarily due to higher gross profits across all segments.
We determine spread as the difference between bill rate and pay rate.
Real Estate Gross Profit: Real Estate gross profit increased approximately $5.8 million (21.4%) consistent with the increase in revenue. The increase in gross profit was due primarily to 4.6% increase in average spread.
Professional Gross Profit: Professional gross profit increased approximately $1.0 million (3.1%) due to the decrease in cost of services which was offset by a 7.0% decrease in average spread. The Zycron acquisition contributed $1.4 million. The Smart acquisition contributed $3.1 million.
Light Industrial Gross Profit: Light Industrial gross profit increased approximately $1.4 million (13.5%) from an increase of 6.3% in the average spread.
Selling, General and Administrative Expenses: Selling, general and administrative expenses increased approximately $6.5 million (14.6%) related to various costs associated with our revenue growth and geographic expansion including increased
headcount, commissions and bonuses as detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
|
|
|
|
|
Amount
|
|
% of Revenue
|
|
Amount
|
|
% of Revenue
|
|
$
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Compensation and related
|
|
$
|
38,756
|
|
|
14
|
%
|
|
$
|
33,168
|
|
|
12
|
%
|
|
$
|
5,588
|
|
|
17
|
%
|
Advertising and recruitment
|
|
1,915
|
|
|
1
|
%
|
|
1,504
|
|
|
1
|
%
|
|
411
|
|
|
27
|
%
|
Occupancy and office operations
|
|
3,685
|
|
|
1
|
%
|
|
3,204
|
|
|
1
|
%
|
|
481
|
|
|
15
|
%
|
Client engagement
|
|
1,270
|
|
|
—
|
%
|
|
1,215
|
|
|
—
|
%
|
|
55
|
|
|
5
|
%
|
Software
|
|
1,342
|
|
|
—
|
%
|
|
1,216
|
|
|
—
|
%
|
|
126
|
|
|
10
|
%
|
Professional fees
|
|
1,155
|
|
|
—
|
%
|
|
876
|
|
|
—
|
%
|
|
279
|
|
|
32
|
%
|
Public company related costs
|
|
524
|
|
|
—
|
%
|
|
496
|
|
|
—
|
%
|
|
28
|
|
|
6
|
%
|
Bad debt
|
|
41
|
|
|
—
|
%
|
|
761
|
|
|
—
|
%
|
|
(720
|
)
|
|
(95
|
)%
|
Share-based compensation
|
|
1,069
|
|
|
—
|
%
|
|
447
|
|
|
—
|
%
|
|
622
|
|
|
139
|
%
|
Transaction fees
|
|
508
|
|
|
—
|
%
|
|
464
|
|
|
—
|
%
|
|
44
|
|
|
9
|
%
|
Other
|
|
801
|
|
|
—
|
%
|
|
1,224
|
|
|
—
|
%
|
|
(423
|
)
|
|
(35
|
)%
|
|
|
$
|
51,066
|
|
|
18
|
%
|
|
$
|
44,575
|
|
|
16
|
%
|
|
$
|
6,491
|
|
|
15
|
%
|
Depreciation and Amortization: Depreciation and amortization charges decreased approximately $1.2 million (19.8%). The decrease in depreciation and amortization is primarily due to Professional segment fully amortized intangible assets related to the
2012 American Partners acquisition of $1.7 million that was partially offset by an increase in the Professional segment intangible assets acquired in the 2017 Zycron and Smart acquisitions of $0.6 million.
Interest Expense, net: Interest expense, net decreased $0.4 million primarily due to the decrease in the interest of $0.6 million related to the amortization of contingent consideration discounts from the 2015 VTS acquisition which was offset by the increase of $0.2 million in amortization of the deferred financing fees related to the Amended Credit Agreement (as defined below).
Income Taxes: Income tax expense decreased approximately $4.8 million primarily due to the rate change impact of the TCJA, the Option Cancellation Agreement, and share-based compensation exercises that are deductible for tax purposes, which resulted in a decrease in the effective rate, offset by higher pre-tax income of $6.9 million.
Non-GAAP Same Day Revenues: Same Day Revenues are defined as a fifty-three week fiscal year ended December 31, 2017 (Fiscal 2017) revenues less five revenue days. The Fiscal 2017 revenues of $272.6 million would be less $5.7 million for five revenue days resulting in Same Day Revenues of $266.9 million. Same Day Revenues increased $20.0 million (7%) to $286.9 million in Fiscal 2018. Same Day Revenues and GAAP revenues were equal for Fiscal 2018.
Non-GAAP Same Day Gross Profit: Same Day Gross Profit is defined as a fifty-three week fiscal year ended December 31, 2017 (Fiscal 2017) gross profit less five gross profit days. The Fiscal 2017 gross profit of $68.4 million would be less $1.4 million for five gross profit days resulting in Same Day Gross Profit of $67.0 million. Same Day Gross Profit increased $9.6 million (14%) to $76.6 million in Fiscal 2018. Same Day Gross Profit and GAAP gross profit were equal for Fiscal 2018.
Liquidity and Capital Resources
Our working capital requirements are primarily driven by field talent payments, tax payments and client partner accounts receivable receipts. Since receipts from client partners lag payments to field talent, working capital requirements increase substantially in periods of growth.
Our primary sources of liquidity are cash generated from operations and borrowings under our credit agreement with BMO Harris Bank, N.A. (“BMO”), that provides for a revolving credit facility maturing July 16, 2024 (the “Revolving Facility”). Our primary uses of cash are payments to field talent, team members, related payroll liabilities, operating expenses, capital expenditures, cash interest, cash taxes, dividends and contingent consideration and debt payments. We believe that the cash generated from operations, together with the borrowing availability under our Revolving Facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new branches throughout the next year. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to obtain additional debt or equity capital or refinance all or a portion of our debt.
While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional growth opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities could be materially adversely affected.
The Company has an effective Form S-3 shelf registration statement allowing for the offer and sale of up to approximately $13 million of common stock. There is no guarantee that we will be able to consummate any offering on terms we consider acceptable or at all.
A summary of our working capital, operating, investing and financing activities are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
December 29,
2019
|
|
December 30,
2018
|
|
December 31,
2017
|
|
|
(dollars in thousands)
|
Working capital
|
|
$
|
27,030
|
|
|
$
|
20,555
|
|
|
$
|
16,320
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
17,954
|
|
|
$
|
18,426
|
|
|
$
|
18,064
|
|
Net cash used in investing activities
|
|
(9,729
|
)
|
|
(924
|
)
|
|
(25,644
|
)
|
Net cash (used in) provided by financing activities
|
|
(8,225
|
)
|
|
(17,502
|
)
|
|
7,580
|
|
Net change in cash and cash equivalents
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating Activities
Cash provided by operating activities consists of net income adjusted for non-cash items, including depreciation and amortization, share-based compensation expense, interest expense on contingent consideration payable, and the effect of working capital changes. The primary drivers of cash inflows and outflows are accounts receivable and accrued payroll and expenses.
During Fiscal 2019, net cash provided by operating activities was $18.0 million, a decrease of $0.5 million compared with $18.4 million for Fiscal 2018. This decrease is primarily attributable to lower net income, the timing of payments on operating assets and liabilities, net deferred tax assets, which was partially offset by contingent consideration adjustments.
During Fiscal 2018, net cash provided by operating activities was $18.4 million, an increase of $0.4 million compared with $18.1 million for Fiscal 2017. This increase is primarily attributable to higher net income, which was partially offset by contingent consideration adjustments, the timing of payments on operating assets and liabilities, amortization expense, and net deferred tax assets.
Investing Activities
Cash used in investing activities consists primarily of cash paid for businesses acquired and capital expenditures.
In Fiscal 2019, we paid $7.5 million in connection with the LJK acquisition and we made capital expenditures of $2.2 million mainly related to software and computer equipment purchased in the ordinary course of business and for the IT roadmap project. In Fiscal 2018, we made capital expenditures of $0.9 million mainly related to furniture and fixtures and computer equipment purchased in the ordinary course of business. In Fiscal 2017, we paid $18.5 million in connection with the Zycron acquisition, $6.0 million in connection with the Smart acquisition and we made capital expenditures of $1.1 million mainly related to computer equipment and software purchased in the ordinary course of business.
Financing Activities
Cash flows from financing activities consisted principally of borrowings and payments under our credit agreements, dividends and contingent consideration paid.
For Fiscal 2019, we paid $12.3 million in cash dividends on our common stock, paid down $10.1 million on the term loan with Texas Capital Bank, National Association (“TCB”), and we paid $2.7 million of contingent consideration related to the Zycron acquisition. We borrowed $9.7 million on our revolving credit facility and borrowed $7.5 million on our term loan in connection with the LJK acquisition.
For Fiscal 2018, we paid $13.8 million in principal payments on the term loan with TCB, paid $10.9 million in cash dividends on our common stock, reduced our revolving credit facility by $10.7 million, paid $3.3 million related to Option Cancellation Agreement, and paid $1.0 million of contingent consideration related to the VTS and Zycron acquisitions. We received net proceeds from the issuance of the common stock of $22.2 million and used the net proceeds to reduce outstanding indebtedness under our credit agreement with TCB and cancel outstanding options pursuant to the Option Cancellation Agreement, as noted above.
For Fiscal 2017, we received proceeds from the issuance of the $25.0 million term loan mainly to fund the Zycron acquisition. We paid $8.7 million in cash dividends on our common stock, paid $4.0 million of contingent consideration related to the VTS acquisition, we reduced our revolving credit facility by $2.5 million, paid $1.1 million in principal payments on the term loan with TCB, and paid $1.1 million in deferred financing costs related to the credit agreement with TCB.
Credit Agreements
On July 16, 2019, we entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with BMO Harris Bank, N.A. (“BMO”), as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a revolving credit facility (the “Revolving Facility”) permitting us to borrow funds from time to time in an aggregate amount up to $35 million. The Credit Agreement also provides for a term loan commitment (the “Term Loan”) permitting us to borrow funds from time to time in an aggregate amount not to exceed $30 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement. We may from time to time, with a maximum of two, request an increase in the aggregate Term Loan commitment by $40 million, with minimum increases of $10 million. Our obligations under the Credit Agreement are secured by a first priority security interest in substantially all our tangible and intangible property. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement). We also pay an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.
The Credit Agreement contains customary affirmative covenants and negative covenants, including certain limitations on our ability to pay cash dividends. We are subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit Agreement.
On December 13, 2019, we borrowed $7.5 million on the Term Loan in conjunction with the closing of the LJK acquisition. On February 3, 2020, we borrowed $18.5 million on the Term Loan in conjunction with the closing of the EdgeRock acquisition, as described in Note 19 in the Notes to Consolidated Financial Statements. We borrowed $20 million under the Revolving Facility to pay off our existing indebtedness with TCB and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment. We recognized a loss on extinguishment of debt of approximately $0.5 million related to the unamortized deferred finance fees.
Contractual Obligations
The following table summarizes our cash contractual obligations as of December 29, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
Total
|
|
Less than 1
year
|
|
1–3 years
|
|
3–5 years
|
|
More than 5
years
|
|
|
(dollars in thousands)
|
Long-term debt obligations
|
|
$
|
27,845
|
|
|
$
|
375
|
|
|
$
|
1,313
|
|
|
$
|
26,157
|
|
|
$
|
—
|
|
Contingent consideration and holdback
|
|
3,500
|
|
|
1,000
|
|
|
2,500
|
|
|
—
|
|
|
—
|
|
Operating lease obligations
|
|
6,077
|
|
|
1,521
|
|
|
2,810
|
|
|
1,550
|
|
|
196
|
|
Contractual cash obligations
|
|
$
|
37,422
|
|
|
$
|
2,896
|
|
|
$
|
6,623
|
|
|
$
|
27,707
|
|
|
$
|
196
|
|
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
We have identified the policies listed below as critical to our business and the understanding of our results of operations. For a detailed discussion of the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K. The preparation of financial statements in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, allowances for uncollectible accounts receivable, impairment of goodwill and intangible assets, lease liability and continent consideration obligations related to acquisitions, contingencies, litigation, income taxes, share-based compensation option expense. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the consolidated financial statements.
Revenue Recognition
We derive our revenues from three segments: Real Estate, Professional, and Light Industrial. We provide workforce solutions and placement services. Revenues are recognized when promised services are delivered to client partners, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. Revenues as presented on the consolidated statements of operations represent services rendered to client partners less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and the related amounts of reimbursable expenses are included in cost of services.
We record revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. We have concluded that gross reporting is appropriate because we (i) have the risk of identifying and hiring qualified field talent, (ii) have the discretion to select the field talent and establish their price and duties and (iii) we bear the risk for services that are not fully paid for by client partners.
Temporary staffing revenues - Field talent revenues from contracts with client partners are recognized in the amount to which we have a right to invoice, when the services are rendered by our field talent.
Contingent placement staffing revenues - Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved, as this is when control transferred to the client partner, usually when employment candidates start their employment. We estimate the effect of placement candidates who do not remain with our client partners through the guarantee period (generally 90 days) based on historical experience. Allowances, recorded as a liability, are established to estimate these losses. Fees to client partners are generally calculated as a percentage of the new worker’s annual compensation. No fees for placement services are charged to employment candidates. These assumptions determine the timing of revenue recognition for the reported period.
Payment terms in our contracts vary by the type and location of our client partner and the services offered. The term between invoicing and when payment is due is not significant.
Goodwill and Intangible Assets
Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. Intangible assets consist of the value of contract-related intangible assets, trade names, non-compete agreements acquired in acquisitions, and purchased software and internal payroll costs directly incurred in the modification of software for internal use. We amortize intangible assets over their respective estimated useful lives based on a pattern in which the economic benefit of the respective intangible asset is realized, unless their useful lives are determined to be indefinite. We review goodwill and other intangible assets for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill and other intangible assets may not be recoverable.
Contingent Consideration
We have obligations, to be paid in cash, related to our acquisitions if certain future operating and financial goals are met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. The fair value calculation of the expected future payments uses a discount rate commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.
Leases
We lease all their office space through operating leases, which expire at various dates through 2025. Many of the lease agreements obligate us to pay real estate taxes, insurance and certain maintenance costs, which are accounted for separately. Certain of our lease arrangements contain renewal provisions from 1 to 10 years, exercisable at our option. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We determine if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term.
Right of use lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. Our operating lease expense is recognized on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses.
Financial Instruments
We use fair value measurements in areas that include, but are not limited to, the allocation of purchase price consideration to tangible and identifiable intangible assets and contingent consideration. The carrying values of cash and cash equivalents, accounts receivables, prepaid expenses, accounts payable, accrued liabilities, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with BMO that provides for the revolving credit facility and term loan and current rates available to us for debt with similar terms and risk.
Share-Based Compensation
We recognize compensation expense in selling, general and administrative expenses over the service period for options or restricted stock that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements and their potential effect on our results of operations and financial condition, refer to Note 2 in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to certain market risks from transactions we enter into in the normal course of business. Our primary market risk exposure relates to interest rate risk.
Interest Rates
Our Revolving Facility and Term Loan are priced at variable interest rates. Accordingly, future interest rate increases could potentially put us at risk for an adverse impact on future earnings and cash flows.
Item 8. Financial Statements and Supplementary Data.
|
|
|
|
Page
|
|
|
Audited Consolidated Financial Statements of BG Staffing, Inc.
|
|
|
|
|
|
|
|
Consolidated Balance Sheets as of December 29, 2019 and December 30, 2018
|
|
|
|
Consolidated Statements of Operations for each of the three fiscal years ended December 29, 2019
|
|
|
|
Consolidated Statements of Changes in Stockholders' Equity for the three fiscal years ended December 29, 2019
|
|
|
|
Consolidated Statements of Cash Flows for each of the three fiscal years ended December 29, 2019
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of BG Staffing, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BG Staffing, Inc. (the “Company”) as of December 29, 2019 and December 30, 2018, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 29, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2019 and December 30, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2019, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 29, 2019, based on criteria established in 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 12, 2020 expressed an unqualified opinion.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Whitley Penn LLP
We have served as the Company’s auditor since 2013.
Dallas, Texas
March 12, 2020
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2019
|
|
December 30, 2018
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Accounts receivable (net of allowance for doubtful accounts of $468,233 at 2019 and 2018)
|
|
$
|
39,423,801
|
|
|
$
|
37,606,721
|
|
|
Prepaid expenses
|
|
1,224,230
|
|
|
984,219
|
|
|
Income taxes receivable
|
|
69,649
|
|
|
—
|
|
|
Other current assets
|
|
19,516
|
|
|
22,733
|
|
|
|
Total current assets
|
|
40,737,196
|
|
|
38,613,673
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
3,545,049
|
|
|
2,556,992
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
Deposits
|
|
3,843,023
|
|
|
3,209,419
|
|
|
Deferred income taxes, net
|
|
4,071,847
|
|
|
4,870,997
|
|
|
Right-of-use asset - operating leases
|
|
4,386,317
|
|
|
—
|
|
|
Intangible assets, net
|
|
33,807,973
|
|
|
33,034,173
|
|
|
Goodwill
|
|
25,194,639
|
|
|
17,983,549
|
|
|
|
Total other assets
|
|
71,303,799
|
|
|
59,098,138
|
|
|
Total assets
|
|
$
|
115,586,044
|
|
|
$
|
100,268,803
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Long-term debt, current portion (net of deferred finance fees of $-0- and $44,920 for 2019 and 2018, respectively)
|
|
$
|
375,000
|
|
|
$
|
4,242,580
|
|
|
Accrued interest
|
|
73,027
|
|
|
308,547
|
|
|
Accounts payable
|
|
479,422
|
|
|
146,257
|
|
|
Accrued payroll and expenses
|
|
10,079,832
|
|
|
10,411,374
|
|
|
Accrued workers’ compensation
|
|
405,207
|
|
|
530,980
|
|
|
Contingent consideration, current portion
|
|
—
|
|
|
2,363,512
|
|
|
Lease liability, current portion
|
|
1,277,843
|
|
|
—
|
|
|
Other current liabilities
|
|
1,016,565
|
|
|
—
|
|
|
Income taxes payable
|
|
—
|
|
|
55,841
|
|
|
|
Total current liabilities
|
|
13,706,896
|
|
|
18,059,091
|
|
|
|
|
|
|
|
|
Line of credit (net of deferred finance fees of $351,128 and $571,782 for 2019 and 2018, respectively)
|
|
19,993,829
|
|
|
10,078,507
|
|
Long-term debt, less current portion (net of deferred finance fees of $-0- and $65,850 for 2019 and 2018, respectively)
|
|
7,125,000
|
|
|
5,767,650
|
|
Contingent consideration, less current portion
|
|
2,174,378
|
|
|
—
|
|
Lease liability, less current portion
|
|
4,128,951
|
|
|
—
|
|
Other long-term liabilities
|
|
—
|
|
|
661,542
|
|
|
|
Total liabilities
|
|
47,129,054
|
|
|
34,566,790
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share, 500,000 shares authorized, -0- shares issued and outstanding
|
|
—
|
|
|
—
|
|
Common stock, $0.01 par value per share; 19,500,000 shares authorized, 10,309,236 and 10,227,247 shares issued and outstanding for 2019 and 2018, respectively, net of treasury stock, at cost, 1,004 and 828 shares for 2019 and 2018, respectively
|
|
75,775
|
|
|
78,246
|
|
Additional paid in capital
|
|
59,617,787
|
|
|
57,624,379
|
|
Retained earnings
|
|
8,763,428
|
|
|
7,999,388
|
|
|
|
Total stockholders’ equity
|
|
68,456,990
|
|
|
65,702,013
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
115,586,044
|
|
|
$
|
100,268,803
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 29, 2019, December 30, 2018 and December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Revenues
|
|
$
|
294,313,548
|
|
|
$
|
286,862,926
|
|
|
$
|
272,600,050
|
|
Cost of services
|
|
213,632,283
|
|
|
210,267,734
|
|
|
204,198,052
|
|
|
Gross profit
|
|
80,681,265
|
|
|
76,595,192
|
|
|
68,401,998
|
|
Selling, general and administrative expenses
|
|
56,199,521
|
|
|
51,066,327
|
|
|
44,575,015
|
|
Gain on contingent consideration
|
|
—
|
|
|
(3,775,307
|
)
|
|
(225,743
|
)
|
Depreciation and amortization
|
|
4,820,256
|
|
|
5,044,487
|
|
|
6,291,958
|
|
|
Operating income
|
|
19,661,488
|
|
|
24,259,685
|
|
|
17,760,768
|
|
Loss on extinguishment of debt
|
|
540,705
|
|
|
—
|
|
|
—
|
|
Interest expense, net
|
|
1,568,815
|
|
|
2,850,405
|
|
|
3,253,134
|
|
|
Income before income taxes
|
|
17,551,968
|
|
|
21,409,280
|
|
|
14,507,634
|
|
Income tax expense
|
|
4,304,978
|
|
|
3,859,739
|
|
|
8,659,200
|
|
|
Net income
|
|
$
|
13,246,990
|
|
|
$
|
17,549,541
|
|
|
$
|
5,848,434
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.29
|
|
|
$
|
1.83
|
|
|
$
|
0.67
|
|
|
Diluted
|
|
$
|
1.28
|
|
|
$
|
1.79
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
10,238,565
|
|
|
9,577,498
|
|
|
8,733,941
|
|
|
Diluted
|
|
10,350,775
|
|
|
9,808,080
|
|
|
9,038,187
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
1.20
|
|
|
$
|
1.15
|
|
|
$
|
1.00
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years ended December 29, 2019, December 30, 2018 and December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Shares
|
|
Par
Value
|
|
Treasury Stock Amount
|
|
Additional Paid in Capital
|
|
Retained
Earnings
|
|
Total
|
Stockholders’ equity, December 25, 2016
|
|
—
|
|
|
8,668,485
|
|
|
$
|
86,685
|
|
|
$
|
—
|
|
|
$
|
36,142,688
|
|
|
$
|
4,259,081
|
|
|
$
|
40,488,454
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
447,301
|
|
|
—
|
|
|
447,301
|
|
Issuance of shares, net of offering costs
|
|
—
|
|
|
70,670
|
|
|
707
|
|
|
—
|
|
|
991,793
|
|
|
—
|
|
|
992,500
|
|
Exercise of common stock options and warrants
|
|
—
|
|
|
20,221
|
|
|
202
|
|
|
—
|
|
|
93,547
|
|
|
—
|
|
|
93,749
|
|
Cash dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,735,759
|
)
|
|
(8,735,759
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,848,434
|
|
|
5,848,434
|
|
Stockholders’ equity, December 31, 2017
|
|
—
|
|
|
8,759,376
|
|
|
87,594
|
|
|
—
|
|
|
37,675,329
|
|
|
1,371,756
|
|
|
39,134,679
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,069,482
|
|
|
—
|
|
|
1,069,482
|
|
Issuance of shares, net of offering costs
|
|
—
|
|
|
1,293,750
|
|
|
12,938
|
|
|
—
|
|
|
21,347,200
|
|
|
—
|
|
|
21,360,138
|
|
Issuance of restricted shares, net of 828 shares of treasury stock
|
|
—
|
|
|
41,172
|
|
|
412
|
|
|
(24,027
|
)
|
|
(412
|
)
|
|
—
|
|
|
(24,027
|
)
|
Exercise of common stock options and warrants
|
|
—
|
|
|
132,949
|
|
|
1,329
|
|
|
—
|
|
|
867,949
|
|
|
—
|
|
|
869,278
|
|
Option cancellation agreement
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,335,169
|
)
|
|
—
|
|
|
(3,335,169
|
)
|
Cash dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,921,909
|
)
|
|
(10,921,909
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,549,541
|
|
|
17,549,541
|
|
Stockholders’ equity, December 30, 2018
|
|
—
|
|
|
10,227,247
|
|
|
102,273
|
|
|
(24,027
|
)
|
|
57,624,379
|
|
|
7,999,388
|
|
|
65,702,013
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
952,738
|
|
|
—
|
|
|
952,738
|
|
Cancellation of restricted shares
|
|
—
|
|
|
(2,250
|
)
|
|
(23
|
)
|
|
—
|
|
|
23
|
|
|
—
|
|
|
—
|
|
Issuance of shares
|
|
—
|
|
|
47,403
|
|
|
474
|
|
|
—
|
|
|
999,526
|
|
|
—
|
|
|
1,000,000
|
|
Exercise of common stock options and warrants
|
|
—
|
|
|
36,836
|
|
|
369
|
|
|
(3,291
|
)
|
|
41,121
|
|
|
—
|
|
|
38,199
|
|
Change in accounting principal - operating leases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(200,608
|
)
|
|
(200,608
|
)
|
Cash dividends declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,282,342
|
)
|
|
(12,282,342
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,246,990
|
|
|
13,246,990
|
|
Stockholders’ equity, December 29, 2019
|
|
—
|
|
|
10,309,236
|
|
|
$
|
103,093
|
|
|
$
|
(27,318
|
)
|
|
$
|
59,617,787
|
|
|
$
|
8,763,428
|
|
|
$
|
68,456,990
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 29, 2019, December 30, 2018 and December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
13,246,990
|
|
|
$
|
17,549,541
|
|
|
$
|
5,848,434
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
830,299
|
|
|
746,443
|
|
|
592,317
|
|
|
|
Amortization
|
|
3,989,957
|
|
|
4,298,044
|
|
|
5,699,641
|
|
|
|
Loss on disposal of property and equipment
|
|
30,767
|
|
|
17,765
|
|
|
17,373
|
|
|
|
Loss on extinguishment of debt, net
|
|
540,705
|
|
|
—
|
|
|
—
|
|
|
|
Contingent consideration adjustment
|
|
—
|
|
|
(3,775,307
|
)
|
|
(225,743
|
)
|
|
|
Amortization of deferred financing fees
|
|
173,018
|
|
|
453,513
|
|
|
251,376
|
|
|
|
Interest expense on contingent consideration payable
|
|
123,761
|
|
|
624,145
|
|
|
1,208,095
|
|
|
|
Provision for doubtful accounts
|
|
128,260
|
|
|
40,618
|
|
|
760,633
|
|
|
|
Share-based compensation
|
|
952,738
|
|
|
1,069,482
|
|
|
447,301
|
|
|
|
Deferred income taxes
|
|
799,150
|
|
|
1,531,516
|
|
|
3,109,942
|
|
|
|
Net changes in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(1,758,340
|
)
|
|
(939,454
|
)
|
|
1,434,308
|
|
|
|
|
Prepaid expenses
|
|
(726,840
|
)
|
|
(36,251
|
)
|
|
102,443
|
|
|
|
|
Other current assets
|
|
3,217
|
|
|
120,504
|
|
|
27,425
|
|
|
|
|
Deposits
|
|
(475,399
|
)
|
|
(302,315
|
)
|
|
(245,018
|
)
|
|
|
|
Accrued interest
|
|
(235,520
|
)
|
|
(22,083
|
)
|
|
229,762
|
|
|
|
|
Accounts payable
|
|
675,790
|
|
|
(1,763,355
|
)
|
|
(555,971
|
)
|
|
|
|
Accrued payroll and expenses
|
|
(82,430
|
)
|
|
(1,129,431
|
)
|
|
284,667
|
|
|
|
|
Accrued workers’ compensation
|
|
(125,773
|
)
|
|
(61,141
|
)
|
|
(162,435
|
)
|
|
|
|
Other current liabilities
|
|
16,565
|
|
|
(87,553
|
)
|
|
(299,691
|
)
|
|
|
|
Income taxes receivable and payable
|
|
(125,490
|
)
|
|
246,753
|
|
|
(384,177
|
)
|
|
|
|
Operating leases
|
|
(27,581
|
)
|
|
—
|
|
|
—
|
|
|
|
|
Other long-term liabilities
|
|
—
|
|
|
(154,959
|
)
|
|
(76,959
|
)
|
|
|
Net cash provided by operating activities
|
|
17,953,844
|
|
|
18,426,475
|
|
|
18,063,723
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Businesses acquired, net of cash received
|
|
(7,500,000
|
)
|
|
—
|
|
|
(24,500,000
|
)
|
|
Capital expenditures
|
|
(2,229,509
|
)
|
|
(923,994
|
)
|
|
(1,145,757
|
)
|
|
Proceeds from sale of property and equipment
|
|
440
|
|
|
—
|
|
|
2,350
|
|
|
|
Net cash used in investing activities
|
|
(9,729,069
|
)
|
|
(923,994
|
)
|
|
(25,643,407
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 29, 2019, December 30, 2018 and December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Net borrowings (payments) under line of credit
|
|
9,694,667
|
|
|
(10,717,778
|
)
|
|
(2,514,646
|
)
|
|
Proceeds from issuance of long-term debt
|
|
7,500,000
|
|
|
—
|
|
|
25,000,000
|
|
|
Principal payments on long-term debt
|
|
(10,121,000
|
)
|
|
(13,766,500
|
)
|
|
(1,112,500
|
)
|
|
Payments of dividends
|
|
(12,282,342
|
)
|
|
(10,921,909
|
)
|
|
(8,735,759
|
)
|
|
Issuance of shares under the 2013 Long-Term Incentive Plan and Form S-3 registration statement, net of exercises
|
|
38,200
|
|
|
22,205,389
|
|
|
86,249
|
|
|
Option cancellation agreement
|
|
—
|
|
|
(3,335,169
|
)
|
|
—
|
|
|
Contingent consideration paid
|
|
(2,672,000
|
)
|
|
(962,996
|
)
|
|
(4,024,257
|
)
|
|
Deferred financing costs
|
|
(382,300
|
)
|
|
(3,518
|
)
|
|
(1,119,403
|
)
|
|
|
Net cash (used in) provided by financing activities
|
|
(8,224,775
|
)
|
|
(17,502,481
|
)
|
|
7,579,684
|
|
Net change in cash and cash equivalents
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents, beginning of year
|
|
—
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents, end of year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,350,713
|
|
|
$
|
1,764,960
|
|
|
$
|
1,447,138
|
|
|
Cash paid for taxes, net of refunds
|
|
$
|
3,563,703
|
|
|
$
|
2,012,325
|
|
|
$
|
5,909,250
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
Leasehold improvements funded by landlord incentives
|
|
$
|
—
|
|
|
$
|
366,202
|
|
|
$
|
255,493
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
BG Staffing, Inc. is a national provider of workforce solutions that operates, along with its wholly owned subsidiaries BG Staffing, LLC, B G Staff Services Inc., BG Personnel, LP and BG Finance and Accounting, Inc. (“BGFA”) (collectively, the “Company”), primarily within the United States of America in three industry segments: Real Estate, Professional, and Light Industrial.
The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 29 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations.
The Professional segment provides skilled field talent on a nationwide basis for information technology (“IT”) and finance, accounting, legal and human resource client partner projects.
The Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce in 7 states.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation.
Fiscal Year
The Company has a 52/53 week fiscal year. Fiscal years for the consolidated financial statements included herein are for the 52 weeks ended December 29, 2019, the 52 weeks ended December 30, 2018, and the 53 weeks ended December 31, 2017, referred to herein as Fiscal 2019, 2018 and 2017, respectively.
Reclassifications
Certain reclassifications have been made to the 2017 and 2018 financial statements to conform with the 2019 presentation.
Management Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the financial statements include allowances for uncollectible accounts receivable, goodwill, intangible assets, lease liability, contingent consideration obligations related to acquisitions, and income taxes. Additionally, the valuation of share-based compensation option expense uses a model based upon interest rates, stock prices, maturity estimates, volatility and other factors. The Company believes these estimates and assumptions are reliable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.
Financial Instruments
The Company uses fair value measurements in areas that include, but are not limited to, the allocation of purchase price consideration to tangible and identifiable intangible assets and contingent consideration. The carrying values of cash and cash equivalents, accounts receivables, prepaid expenses, accounts payable, accrued liabilities, and other current assets and liabilities approximate their fair values because of the short-term nature of these instruments. The carrying value of bank debt approximates fair value due to the variable nature of the interest rates under the credit agreement with BMO Harris Bank, N.A. (“BMO”) that provides for a revolving credit facility and term loan and current rates available to the Company for debt with similar terms and risk.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
Concentration of Credit Risk
Concentration of credit risk is limited due to the Company’s diverse client partner base and their dispersion across many different industries and geographic locations nationwide. No single client partner accounted for more than 10% of the Company’s accounts receivable as of December 29, 2019 and December 30, 2018 or revenue in Fiscal 2019, 2018 and 2017. Geographic revenue in excess of 10% of the Company's consolidated revenue in Fiscal 2019 and the related percentage for Fiscal 2018 and 2017 was generated in the following areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Maryland
|
|
11
|
%
|
|
11
|
%
|
|
12
|
%
|
Tennessee
|
|
15
|
%
|
|
14
|
%
|
|
12
|
%
|
Texas
|
|
28
|
%
|
|
29
|
%
|
|
29
|
%
|
Consequently, weakness in economic conditions in these regions could have a material adverse effect on the Company’s financial position and results of future operations.
Accounts Receivable
The Company extends credit to its client partners in the normal course of business. Accounts receivable represents unpaid balances due from client partners. The Company maintains an allowance for doubtful accounts for expected losses resulting from client partners’ non-payment of balances due to the Company. The Company’s determination of the allowance for uncollectible amounts is based on management’s judgments and assumptions, including general economic conditions, portfolio composition, prior loss experience, evaluation of credit risk related to certain individual client partners and the Company’s ongoing examination process. Receivables are written off after they are deemed to be uncollectible after all means of collection have been exhausted. Recoveries of receivables previously written off are recorded when received.
Changes in the allowance for doubtful accounts for the fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Beginning balance
|
|
$
|
468,233
|
|
|
$
|
473,573
|
|
Provision for doubtful accounts
|
|
128,260
|
|
|
40,618
|
|
Amounts written off, net
|
|
(128,260
|
)
|
|
(45,958
|
)
|
Ending balance
|
|
$
|
468,233
|
|
|
$
|
468,233
|
|
Property and Equipment
The Company depreciates the cost of property and equipment over the estimated useful lives of the assets using the straight-line method ranging from five to seven years. The costs of leasehold improvements are amortized over the shorter of the estimated useful life or lease term. The cost of normal maintenance and repairs is charged to operating expenses as incurred. Material expenditures that increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. The cost of properties sold, or otherwise disposed of, and the related accumulated depreciation or amortization, are removed from the accounts, and any gains or losses are reflected in current operations.
Deposits
The Company maintains guaranteed costs policies for workers' compensation coverage in the Texas, Washington, and Ohio and minimal loss retention coverage for team members and field talent in the Light Industrial segment and its other non-Texas workforce. Under these policies, the Company is required to maintain refundable deposits of $3.6 million and $2.9 million, which are included in Deposits the accompanying consolidated balance sheets, as of December 29, 2019 and December 30, 2018, respectively.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-Lived Assets
The Company reviews its long-lived assets of fixed assets and right of use lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. There were no impairments during Fiscal 2019, 2018 and 2017.
Leases
The Company leases all their office space through operating leases, which expire at various dates through 2025. Many of the lease agreements obligate the Company to pay real estate taxes, insurance and certain maintenance costs, which are accounted for separately. Certain of the Company’s lease arrangements contain renewal provisions from 1 to 10 years, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet as right-of-use assets and lease liabilities for the lease term.
Right of use lease assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. The present value of lease payments is determined primarily using the incremental borrowing rate based on the information available at lease commencement date. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses.
Intangible Assets
The Company holds intangible assets with indefinite and finite lives. Intangible assets with indefinite useful lives are not amortized. Intangible assets with finite useful lives are amortized over their respective estimated useful lives, ranging from three to ten years, based on a pattern in which the economic benefit of the respective intangible asset is realized.
Identifiable intangible assets recognized in conjunction with acquisitions are recorded at fair value. Significant unobservable inputs are used to determine the fair value of the identifiable intangible assets based on the income approach valuation model whereby the present worth and anticipated future benefits of the identifiable intangible assets are discounted back to their net present value.
The Company capitalizes purchased software and internal payroll costs directly incurred in the modification of software for internal use. Software maintenance and training costs are expensed in the period incurred.
The Company evaluates the recoverability of intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. The Company annually evaluates the remaining useful lives of all intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization. The Company determined that there were no impairment indicators for these assets in Fiscal 2019, 2018 and 2017.
Goodwill
Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. The Company reviews goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Based on annual testing, the Company has determined that there was no goodwill impairment in Fiscal 2019, 2018 or 2017.
The Company first evaluates qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit is less than its carrying amount, including goodwill. If after qualitatively assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then further testing is unnecessary. If after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company then estimates the fair value of the reporting unit and compares the fair value of the reporting unit with its carrying amount, including goodwill, as discussed below.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In assessing whether it is more likely than not that an indefinite-lived intangible asset is impaired, the Company assesses relevant events and circumstances that could affect the significant inputs used to determine the fair value.
The quantitative impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, a reporting unit shall recognize an impairment loss in an amount equal to that excess.
The quantitative goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.
Deferred Financing Fees
Deferred financing fees are amortized using the effective interest method over the term of the respective loans. Debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability.
Contingent Consideration
The Company has obligations, to be paid in cash, related to its acquisitions if certain future operating and financial goals are met. The fair value of this contingent consideration is determined using expected cash flows and present value technique. The fair value calculation of the expected future payments uses a discount rate commensurate with the risks of the expected cash flow. The resulting discount is amortized as interest expense over the outstanding period using the effective interest method.
Revenue Recognition
The Company derives its revenues from three segments: Real Estate, Professional, and Light Industrial. The Company provides workforce solutions and placement services. Revenues are recognized when promised services are delivered to client partners, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. Revenues as presented on the consolidated statements of operations represent services rendered to client partners less sales adjustments and allowances. Reimbursements, including those related to out-of-pocket expenses, are also included in revenues, and the related amounts of reimbursable expenses are included in cost of services.
The Company records revenue on a gross basis as a principal versus on a net basis as an agent in the presentation of revenues and expenses. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified field talent, (ii) has the discretion to select the field talent and establish their price and duties and (iii) bears the risk for services that are not fully paid for by client partners.
Temporary staffing revenues - Field talent revenues from contracts with client partners are recognized in the amount to which the Company has a right to invoice, when the services are rendered by the Company’s field talent.
Contingent placement staffing revenues - Any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved, as this is when control is transferred to the client partner, usually when employment candidates start their employment. The Company estimates the effect of placement candidates who do not remain with its client partners through the guarantee period (generally 90 days) based on historical experience. Allowances, recorded as a liability, are established to estimate these losses. Fees to client partners are generally calculated as a percentage of the new worker’s annual compensation. No fees for placement services are charged to employment candidates. These assumptions determine the timing of revenue recognition for the reported period.
Refer to Note 17 for disaggregated revenues by segment.
Payment terms in the Company's contracts vary by the type and location of its client partner and the services offered. The term between invoicing and when payment is due is not significant. There were no unsatisfied performance obligations as of December 29, 2019. There were no revenues recognized during Fiscal 2019 related to performance obligations satisfied or partially
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
satisfied in previous periods. There are no contract costs capitalized. The Company did not recognize any contract impairments during Fiscal 2019.
Advertising
The Company recognizes advertising expense in selling, general and administrative expenses as the services are incurred. Total advertising expense for Fiscal 2019, 2018 and 2017 was $1.9 million, $1.9 million, and $1.5 million, respectively.
Share-Based Compensation
The Company recognizes compensation expense in selling, general and administrative expenses over the service period for options or restricted stock that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.
Earnings Per Share
Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period adjusted to reflect potentially dilutive securities. Antidilutive shares are excluded from the calculation of earnings per share.
The following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
2019
|
|
December 30,
2018
|
|
December 31,
2017
|
Weighted-average number of common shares outstanding:
|
|
10,238,565
|
|
|
9,577,498
|
|
|
8,733,941
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
90,681
|
|
|
186,995
|
|
|
268,765
|
|
|
Warrants
|
|
21,529
|
|
|
43,587
|
|
|
35,481
|
|
Weighted-average number of diluted common shares outstanding
|
|
10,350,775
|
|
|
9,808,080
|
|
|
9,038,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
|
|
238,750
|
|
|
175,000
|
|
|
178,000
|
|
|
Warrants
|
|
—
|
|
|
—
|
|
|
32,250
|
|
Anti-dilutive shares
|
|
238,750
|
|
|
175,000
|
|
|
210,250
|
|
Income Taxes
The current provision for income taxes represents estimated amounts payable or refundable on tax returns filed or to be filed for the year. The Company recognizes any penalties when necessary as part of selling, general and administrative expenses. Goodwill is deductible for tax purposes.
Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts are classified net as noncurrent in the consolidated balance sheets. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment. The Company does not have any net operating loss carry forwards.
When appropriate, the Company will record a valuation allowance against net deferred tax assets to offset future tax benefits that may not be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management’s judgments regarding future events and past operating results. The Company believes that it is more likely than not that all deferred tax assets will be realized and thus, believes that a valuation allowance is not required as of December 29, 2019 or December 30, 2018.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company follows the guidance of ASC Topic 740, Accounting for Uncertainty in Income Taxes. ASC Topic 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in a tax return.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts receivable. The new standard will become effective for the Company for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this accounting guidance will have on the consolidated financial statements. Since the Company currently uses an expected losses from client partners method, the Company does not anticipate the adoption of ASU 2016-13 will have a material impact on the Company's financial condition or results of operations.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill and Other Simplifying the Test for Goodwill Impairment, which provides guidance to simplify the subsequent measurement of goodwill by eliminating the Step 2 procedure from the goodwill impairment test. The new standard is effective for the Company beginning with the fourth quarter of 2020. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on the Company's financial condition or results of operations.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The new standard is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new guidance is effective after December 15, 2019. Early adoption is permitted. The Company does not anticipate the adoption of ASU 2018-13 will have a material impact on the Company's financial condition or results of operations.
NOTE 3 - ACQUISITIONS
L.J. Kushner & Associates, L.L.C.
On December 13, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of L.J. Kushner & Associates, L.L.C. (“LJK”) for cash consideration of $8.5 million and issued $1.0 million (47,403 shares privately placed) of the Company's common stock at closing. $1.0 million was held back as partial security for certain post-closing liabilities. The purchase agreement further provides for contingent consideration of up to $2.5 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase agreement contained a provision for a “true up” of acquired working capital 90 days after the closing date.
The net assets acquired were assigned to the Professional segment. The acquisition of LJK allows the Company to strengthen and expand its IT operations through cybersecurity retained search services specializing in recruiting high and mid-level security professionals.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Fiscal 2019 consolidated statement of operations includes two weeks of LJK operations and there are no revenues and minimal operating expenses. The purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition. All amounts recorded to goodwill are expected to be deductible for tax purposes. The preliminary allocation is as follows:
|
|
|
|
|
|
Accounts receivable
|
|
$
|
187,000
|
|
Prepaid expenses and other assets
|
|
14,000
|
|
Intangible assets
|
|
4,249,430
|
|
Goodwill
|
|
7,211,090
|
|
Total net assets acquired
|
|
$
|
11,661,520
|
|
Cash
|
|
$
|
7,500,000
|
|
Hold back (included in Other current liabilities)
|
|
1,000,000
|
|
Common stock
|
|
1,000,000
|
|
Fair value of contingent consideration
|
|
2,161,520
|
|
Total fair value of consideration transferred for acquired business
|
|
$
|
11,661,520
|
|
The preliminary allocation of the intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
Estimated Fair
Value
|
|
Estimated
Useful Lives
|
Covenants not to compete
|
|
$
|
500,000
|
|
|
5 years
|
Trade name
|
|
3,000,000
|
|
|
Indefinite
|
Client partner list
|
|
749,430
|
|
|
5 years
|
Total
|
|
$
|
4,249,430
|
|
|
|
The Company incurred costs of $0.1 million related to the LJK acquisition. These costs were expensed as incurred in selling, general and administrative expenses in 2019.
Supplemental Unaudited Pro Forma Information
The Company estimates that the revenues and net income for the period below that would have been reported if the LJK acquisition had taken place on the first day of Fiscal 2018 would be as follows (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Revenues
|
|
$
|
297,362
|
|
|
$
|
290,195
|
|
Gross profit
|
|
$
|
83,730
|
|
|
$
|
79,927
|
|
Net income
|
|
$
|
14,089
|
|
|
$
|
18,329
|
|
Net income per share:
|
|
|
|
|
|
Basic
|
|
$
|
1.38
|
|
|
$
|
1.91
|
|
Diluted
|
|
$
|
1.36
|
|
|
$
|
1.87
|
|
Pro forma net income includes amortization of identifiable intangible assets, interest expense on additional borrowings on the Term Loan at a rate of 4.0% and tax expense of the pro forma adjustments at an effective tax rate of 24.5% for Fiscal 2019 and 18.0% for Fiscal 2018. The pro forma information presented includes adjustments that will have a continuing impact on the operations that management considers non-recurring in assessing LJK's historical performances.
Amounts set forth above are not necessarily indicative of the results that would have been attained had the LJK acquisition taken place on the first day of Fiscal 2018 or of the results that may be achieved by the combined enterprise in the future.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT, NET
Property and equipment as of December 29, 2019 and December 30, 2018 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Leasehold improvements
|
|
$
|
1,266,925
|
|
|
$
|
1,243,270
|
|
Furniture and fixtures
|
|
1,207,665
|
|
|
1,062,696
|
|
Computer systems
|
|
3,746,156
|
|
|
2,273,205
|
|
Vehicles
|
|
161,429
|
|
|
96,288
|
|
|
|
6,382,175
|
|
|
4,675,459
|
|
Accumulated depreciation
|
|
(2,837,126
|
)
|
|
(2,118,467
|
)
|
Property and equipment, net
|
|
$
|
3,545,049
|
|
|
$
|
2,556,992
|
|
Total depreciation expense in Fiscal 2019, 2018 and 2017 was $830,299, $746,443, and $592,317, respectively.
NOTE 5 - LEASES
The Company adopted the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) ASU 2016-02, Leases on the first day of Fiscal 2019 on a modified retrospective basis. The initial adoption of the standard recognized right-of-use assets of $4.1 million and lease liabilities of $4.3 million on the Company’s statement of financial position with no impact on the Company's results of operations. The Company did elect the hindsight practical expedient and did elect the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases. The Company also implemented a lease accounting system, but had no significant changes to processes or controls.
At December 29, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.2 years and 5.6%, respectively. The Company's future operating lease obligations that have not yet commenced are immaterial. For Fiscal 2019, the Company's cash paid for operating leases was $1,645,470, and operating lease and short-term lease costs were $1,555,374 and $687,981, respectively.
The undiscounted annual future minimum lease payments consist of the following at:
|
|
|
|
|
|
December 29, 2019
|
2020
|
$
|
1,520,950
|
|
2021
|
1,449,770
|
|
2022
|
1,360,320
|
|
2023
|
982,511
|
|
2024
|
567,633
|
|
Thereafter
|
196,075
|
|
Total lease payment
|
6,077,259
|
|
Interest
|
(670,465
|
)
|
Present value of lease liabilities
|
$
|
5,406,794
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INTANGIBLE ASSETS
Finite and indefinite lived intangible assets consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2019
|
|
|
Gross Value
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
Finite lives:
|
|
|
|
|
|
|
Client partner lists
|
|
$
|
52,358,991
|
|
|
$
|
40,462,549
|
|
|
$
|
11,896,442
|
|
Covenant not to compete
|
|
2,615,585
|
|
|
1,662,220
|
|
|
953,365
|
|
Computer software
|
|
1,228,057
|
|
|
750,457
|
|
|
477,600
|
|
|
|
56,202,633
|
|
|
42,875,226
|
|
|
13,327,407
|
|
Indefinite lives:
|
|
|
|
|
|
|
Trade names
|
|
21,913,000
|
|
|
1,432,434
|
|
|
20,480,566
|
|
Total
|
|
$
|
78,115,633
|
|
|
$
|
44,307,660
|
|
|
$
|
33,807,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
|
Gross Value
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
Finite lives:
|
|
|
|
|
|
|
Client partner lists
|
|
$
|
51,609,561
|
|
|
$
|
36,931,448
|
|
|
$
|
14,678,113
|
|
Covenant not to compete
|
|
1,918,000
|
|
|
1,499,005
|
|
|
418,995
|
|
Computer software
|
|
848,111
|
|
|
391,612
|
|
|
456,499
|
|
|
|
54,375,672
|
|
|
38,822,065
|
|
|
15,553,607
|
|
Indefinite lives:
|
|
|
|
|
|
|
Trade names
|
|
18,913,000
|
|
|
1,432,434
|
|
|
17,480,566
|
|
Total
|
|
$
|
73,288,672
|
|
|
$
|
40,254,499
|
|
|
$
|
33,034,173
|
|
Estimated future amortization expense for the next five years and thereafter is as follows:
|
|
|
|
|
Fiscal Years Ending:
|
|
2020
|
$
|
3,399,649
|
|
2021
|
1,781,077
|
|
2022
|
1,685,982
|
|
2023
|
1,633,332
|
|
2024
|
1,546,195
|
|
Thereafter
|
3,281,172
|
|
Total
|
$
|
13,327,407
|
|
Total amortization expense for Fiscal 2019, 2018 and 2017 was $4.0 million, $4.3 million and $5.7 million, respectively.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - GOODWILL
The changes in the carrying amount of goodwill as of and during the years ended were as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
Professional
|
|
Light Industrial
|
|
Total
|
December 31, 2017
|
|
$
|
1,073,755
|
|
|
$
|
11,871,474
|
|
|
$
|
5,024,820
|
|
|
$
|
17,970,049
|
|
additions from acquisitions
|
|
—
|
|
|
13,500
|
|
|
—
|
|
|
13,500
|
|
December 30, 2018
|
|
1,073,755
|
|
|
11,884,974
|
|
|
5,024,820
|
|
|
17,983,549
|
|
additions from acquisitions
|
|
—
|
|
|
7,211,090
|
|
|
—
|
|
|
7,211,090
|
|
December 29, 2019
|
|
$
|
1,073,755
|
|
|
$
|
19,096,064
|
|
|
$
|
5,024,820
|
|
|
$
|
25,194,639
|
|
NOTE 8 - ACCRUED PAYROLL AND EXPENSES, CONTINGENT CONSIDERATION, AND OTHER LONG-TERM LIABILITIES
Accrued payroll and expenses consist of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
2019
|
|
December 30,
2018
|
Field talent payroll
|
|
$
|
4,505,264
|
|
|
$
|
4,236,534
|
|
Field talent payroll related
|
|
1,246,353
|
|
|
1,402,926
|
|
Accrued bonuses and commissions
|
|
1,585,681
|
|
|
1,673,130
|
|
Other
|
|
2,742,534
|
|
|
3,098,784
|
|
Accrued payroll and expenses
|
|
$
|
10,079,832
|
|
|
$
|
10,411,374
|
|
The following is a schedule of future estimated contingent consideration payments to various parties as of December 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Cash Payment
|
|
Discount
|
|
Net
|
Due in:
|
|
|
|
|
|
One to two years
|
$
|
1,250,000
|
|
|
$
|
(193,719
|
)
|
|
$
|
1,056,281
|
|
Two to three years
|
1,250,000
|
|
|
(131,903
|
)
|
|
1,118,097
|
|
Contingent consideration
|
$
|
2,500,000
|
|
|
$
|
(325,622
|
)
|
|
$
|
2,174,378
|
|
Other long-term liabilities consisted primarily of deferred rent at December 30, 2018.
NOTE 9 - INCOME TAXES
The Company's income tax expense for the fiscal years are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Current federal income tax
|
|
$
|
2,380,289
|
|
|
$
|
1,568,308
|
|
|
$
|
4,619,445
|
|
|
Current state income tax
|
|
1,125,539
|
|
|
759,915
|
|
|
929,813
|
|
|
Deferred income tax
|
|
799,150
|
|
|
1,531,516
|
|
|
3,109,942
|
|
(1)
|
Income tax expense
|
|
$
|
4,304,978
|
|
|
$
|
3,859,739
|
|
|
$
|
8,659,200
|
|
|
(1) Fiscal 2017 includes the impact of TCJA.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company’s deferred income taxes are as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
2019
|
|
December 30,
2018
|
Deferred tax assets:
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
105,015
|
|
|
$
|
102,980
|
|
|
Goodwill and intangible assets
|
|
3,764,556
|
|
|
4,320,035
|
|
|
Workers’ compensation
|
|
97,003
|
|
|
85,413
|
|
|
Contingent consideration
|
|
560,001
|
|
|
581,278
|
|
|
Share-based compensation
|
|
278,095
|
|
|
276,552
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Prepaid expenses
|
|
(427,166
|
)
|
|
(202,832
|
)
|
|
Fixed assets
|
|
(305,657
|
)
|
|
(292,429
|
)
|
Deferred income taxes, net
|
|
$
|
4,071,847
|
|
|
$
|
4,870,997
|
|
The income tax provision, reconciled to the tax computed at the statutory federal rate, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Tax expense at federal statutory rate
|
|
$
|
3,685,913
|
|
21.0
|
%
|
|
$
|
4,495,949
|
|
21.0
|
%
|
|
$
|
4,979,395
|
|
34.3
|
%
|
State income taxes, net of federal benefit
|
|
1,038,380
|
|
5.9
|
%
|
|
776,984
|
|
3.6
|
%
|
|
610,691
|
|
4.2
|
%
|
Re-measurement of deferred assets
|
|
—
|
|
—
|
%
|
|
—
|
|
—
|
%
|
|
3,314,037
|
|
22.8
|
%
|
Equity, permanent differences and other
|
|
218,025
|
|
1.2
|
%
|
|
(714,845
|
)
|
(3.3
|
)%
|
|
(62,318
|
)
|
(0.4
|
)%
|
Work Opportunity Tax Credit, net
|
|
(637,340
|
)
|
(3.6
|
)%
|
|
(698,349
|
)
|
(3.3
|
)%
|
|
(182,605
|
)
|
(1.2
|
)%
|
Income tax expense
|
|
$
|
4,304,978
|
|
24.5
|
%
|
|
$
|
3,859,739
|
|
18.0
|
%
|
|
$
|
8,659,200
|
|
59.7
|
%
|
NOTE 10 - DEBT
On July 16, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”), maturing July 16, 2024, with BMO, as lead administrative agent, lender, letters of credit issuer, and swing line lender. The Credit Agreement provides for a revolving credit facility (the “Revolving Facility”) permitting the Company to borrow funds from time to time in an aggregate amount up to $35 million. The Credit Agreement also provides for a term loan commitment (the “Term Loan”) permitting the Company to borrow funds from time to time in an aggregate amount not to exceed $30 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Credit Agreement. The Company may from time to time, with a maximum of two, request an increase in the aggregate Term Loan by $40 million, with minimum increases of $10 million. The Company’s obligations under the Credit Agreement are secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries. The Credit Agreement bears interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms are defined in the Credit Agreement). The Company also pays an unused commitment fee on the daily average unused amount of Revolving Facility and Term Loan.
The Credit Agreement contains customary affirmative covenants and negative covenants. The Company is subject to a maximum Leverage Ratio and a minimum Fixed Charge Coverage Ratio as defined in the Credit Agreement. The Company was in compliance with these covenants as of December 29, 2019.
On December 13, 2019, the Company borrowed $7.5 million on the Term Loan in conjunction with the closing of the LJK acquisition. On February 3, 2020, the Company borrowed $18.5 million on the Term Loan in conjunction with the closing of the EdgeRock acquisition, as described in Note 19 below. The Company borrowed $20 million under the Revolving Facility to pay off existing indebtedness of the Company under the Amended Credit Agreement (as defined below) and such agreement (and related ancillary documentation) was terminated on July 16, 2019 in connection with such repayment. The Company recognized a loss on extinguishment of debt of approximately $0.5 million related to the unamortized deferred finance fees.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2017, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Texas Capital Bank, National Association (“TCB”) with an aggregate commitment of $55.0 million. The Amended Credit Agreement provided for a revolving credit facility (the “Revolving Facility with TCB”), permitting the Company to borrow funds from time to time in an aggregate amount equal to the lesser of the borrowing base amount, which was 85% of eligible accounts receivable, and $35.0 million and also provided for a term loan (the “Term Loan with TCB”) in the amount of $20.0 million with principal payable quarterly, based on an annual percentage of the original principal amount as defined in the Amended Credit Agreement.
The Revolving Facility with TCB and Term Loan with TCB bore interest either at the Base Rate plus the Applicable Margin or LIBOR plus the Applicable Margin (as such terms were defined in the Amended Credit Agreement). All interest and commitment fees were paid quarterly. Additionally, the Company paid an unused commitment fee on the unfunded portion of the Revolving Facility. The Company’s obligations under the Amended Credit Agreement were secured by a first priority security interest in substantially all tangible and intangible property of the Company and its subsidiaries.
Line of Credit
At December 29, 2019 and December 30, 2018, $20.3 million and $10.7 million, respectively, was outstanding on the revolving facilities. Average daily balance for Fiscal 2019, 2018 and 2017 was $16.5 million, $15.6 million, and $20.3 million, respectively.
Borrowings under the revolving facilities consisted of and bore interest at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
2019
|
|
December 30,
2018
|
Base Rate
|
$
|
2,844,957
|
|
|
5.25
|
%
|
|
$
|
650,289
|
|
|
6.50
|
%
|
LIBOR
|
17,500,000
|
|
|
3.26
|
%
|
|
10,000,000
|
|
|
5.16
|
%
|
Total
|
$
|
20,344,957
|
|
|
|
|
$
|
10,650,289
|
|
|
|
Long Term Debt
Long-term debt consisted of and bore interest at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29,
2019
|
|
December 30,
2018
|
Base Rate (1)
|
|
$
|
7,500,000
|
|
5.25
|
%
|
|
$
|
1,121,000
|
|
6.50
|
%
|
LIBOR
|
|
—
|
|
—
|
%
|
|
9,000,000
|
|
5.41
|
%
|
Long-term debt
|
|
$
|
7,500,000
|
|
|
|
$
|
10,121,000
|
|
|
(1) On January 21, 2020 the rate was changed to 3.16%
|
|
|
|
|
|
|
Maturities on the Revolving Facility with BMO and long-term debt as of December 29, 2019, are as follows:
|
|
|
|
|
Fiscal:
|
|
2020
|
$
|
375,000
|
|
2021
|
562,500
|
|
2022
|
750,000
|
|
2023
|
937,500
|
|
2024
|
25,219,957
|
|
|
27,844,957
|
|
Less deferred finance fees
|
(351,128
|
)
|
Total
|
$
|
27,493,829
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - FAIR VALUE MEASUREMENTS
The accounting standard for fair value measurements defines fair value and establishes a market-based framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are measured at fair value. The fair value hierarchy established prioritizes the inputs used in valuation techniques into three levels as follows:
Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;
Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities - includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets, for substantially the full term of the financial instrument; and
Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis and the level they fall within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recorded at Fair Value
|
|
Financial Statement Classification
|
|
Fair Value Hierarchy
|
|
December 29,
2019
|
|
December 30,
2018
|
Contingent consideration, net
|
|
Contingent consideration, net - current and long-term
|
|
Level 3
|
|
$
|
2,174,378
|
|
|
$
|
2,363,512
|
|
The changes in the Level 3 fair value measurements from December 30, 2018 to December 29, 2019 relate to $2.2 million attributable to the LJK acquisition, $0.1 million in accretion, $2.7 million in payments on contingent consideration, and an adjustment to covenants not to compete assets. The changes in the Level 3 fair value measurements from December 31, 2017 to December 30, 2018 relate to $0.6 million in accretion, $1.0 million in payments on contingent consideration, and the remaining in gains included in earnings. Key inputs in determining the fair value of the contingent consideration as of December 29, 2019 and December 30, 2018 included discount rates ranging from 7.5% to 9.3% as well as management's estimates of future sales volumes and EBITDA.
NOTE 12 - CONTINGENCIES
The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of the loss can be made.
The Company insures against, subject to and upon the terms and conditions of various insurance policies, claims or losses from workers’ compensation, general liability, automobile liability, property damage, professional liability, employment practices, fiduciary liability, fidelity losses and director and officer liability. Under the Company's bylaws, the Company’s directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Company. The Company also has an insurance policy for our directors and officers to insure them against liabilities arising from the performance of their positions with the Company or its subsidiaries. The Company has also entered into indemnification agreements with its directors and certain officers.
Employment Agreements
The CEO’s employment agreement was effective as of October 1, 2018 and shall continue through September 30, 2021. The agreement remains in effect under successive one-year extensions unless terminated pursuant to its terms. In the event that her employment is terminated by the Company without cause or by her for good reason, she will be entitled to (i) twelve months of base salary, (ii) accrued bonus, and (iii) eighteen months of COBRA premiums for her and her dependents, grossed-up for federal income taxes. Additionally, she will become 100% vested in any awards outstanding under the 2013 Plan or similar plan. Should there be a sale of the Company that results in the termination of her employment or a material adverse change in her duties and responsibilities, she will be entitled to all of the amounts listed above, however, base salary shall equal eighteen months.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The CFO’s employment agreement was effective as of October 1, 2018 and shall continue through September 30, 2021. The agreement remains in effect under successive one-year extensions unless terminated pursuant to its terms. In the event that his employment is terminated by the Company without cause or by him for good reason, he will be entitled to (i) twelve months of base salary, (ii) accrued bonus, and (iii) eighteen months of COBRA premiums for him and his dependents, grossed-up for federal income taxes. Additionally, he will become 100% vested in any awards outstanding under the 2013 Plan or similar plan. Should there be a sale of the Company that results in the termination of his employment or a material adverse change in his duties and responsibilities, he will be entitled to all of the amounts listed above, however, base salary shall equal eighteen months.
NOTE 13 - EQUITY
Authorized capital stock consists of 19,500,000 shares of common stock, par value $0.01 per share and 500,000 shares of undesignated preferred stock, par value $0.01 per share.
On December 13, 2019, the Company issued 47,403 shares of common stock, $0.01 par value per share, in a private placement for a value of $1,000,000 at the closing of the LJK acquisition.
In August 2018, the Company issued a net of 41,172 shares of restricted common stock, $0.01 par value per share, to various team members and directors under the 2013 Long-Term Incentive Plan, as amended (the “2013 Plan”). The restricted shares contain a three-year service condition. The restricted stock constitutes issued and outstanding shares of the Company’s common stock, except for the right of disposal, for all purposes during the period of restriction including voting rights and dividend distributions.
The Company repurchased 176 and 828 shares of company stock, or treasury stock, to satisfy the withholding obligation in connection with the vesting of a portion of the restricted stock for Fiscal 2019 and 2018, respectively. Treasury stock is accounted for under the cost method whereby the entire cost of the acquired stock is recorded.
In May 2018, the Company issued and sold 1,293,750 shares of common stock, $0.01 par value per share, to various investors in a registered offering for an aggregate purchase price (before deducting underwriting discounts and commissions and other estimated offering expenses) of $23.3 million in cash. The public offering price was $18.00 per share. The newly issued shares constituted approximately 14.7% of the total of issued and outstanding shares of common stock immediately before the initial execution of the Underwriting Agreement. In connection with the closing, the Company incurred $1.9 million in offering costs, which included $0.8 million fees paid to Taglich Brothers, a related party, as described in Note 15 below. Proceeds were used to pay off existing indebtedness of the Company under the Amended Credit Agreement and cancel outstanding in-the-money stock options held by L. Allen Baker, Jr., BG Staffing's former President and Chief Executive Officer, as described in Note 14 below.
On April 3, 2017, the Company issued 70,670 shares of common stock, $0.01 par value per share, in a private placement for a value of $992,500 at the closing of the Zycron acquisition. The Company incurred $7,500 in offering costs.
NOTE 14 - SHARE-BASED COMPENSATION
Stock Options and Restricted Stock
In December 2013, the board of directors adopted the original 2013 Plan. Under the original 2013 Plan team members, directors and consultants of the Company may receive incentive stock options and other awards. A total of 900,000 shares of common stock of BG Staffing, Inc. were initially reserved for issuance pursuant to the original 2013 Plan. On May 16, 2017, stockholders of the Company approved and made effective an amendment to the 2013 Plan to add an additional 250,000 shares of common stock reserved for issuance. To the extent any option or award expires unexercised or is canceled, terminated or forfeited in any manner without the issuance of common stock thereunder, such shares shall again be available for issuance under the original 2013 Plan.
The term of each option is determined by the board of directors but cannot exceed 10 years. Unless otherwise specified in an option agreement, options vest and become exercisable on the following schedule: 20% immediately and 20% on each anniversary date of the grant date. Each option shall be designated as an incentive stock option (“ISO”) or a non-qualified option (“NQO”). The exercise price of an ISO shall not be less than the fair market value of the stock covered by the ISO at the grant date; provided, however, the exercise price of an ISO granted to any person who owns, directly or indirectly, stock of the Company constituting more than 10% of the total combined voting power of all classes of outstanding stock of the Company or of any affiliate of the Company, shall not be less than 110% of such fair market value.
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option award was estimated on the date of grant using a Black-Scholes option pricing model and the assumptions in the following table. Because this option valuation model incorporates ranges of assumptions for inputs, those ranges are disclosed below. The Company bases the estimate of expected volatility on the historical volatilities of the Company for a period equal to the expected life of the option.
The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company expects to use historical data to estimate team member termination within the valuation model; separate groups of team members that have similar historical termination behavior are considered separately for valuation purposes. The Company believes these estimates and assumptions are reasonable. However, these estimates and assumptions may change in the future based on actual experience as well as market conditions.
On May 31, 2018, the Company entered into a stock option cancellation agreement (the “Option Cancellation Agreement”) with L. Allen Baker, Jr., the Company's former President and Chief Executive Officer, pursuant to which the Company agreed to pay Mr. Baker $18.00 per share of common stock underlying his vested in-the-money stock options granted under the Company’s 2013 Plan, less the exercise price per share thereof, in exchange for the cancellation and termination of such stock options. Pursuant to the terms of the Option Cancellation Agreement, the Company paid $3.3 million to Mr. Baker in exchange for the cancellation of 284,888 stock options granted to him under the 2013 Plan.
For Fiscal 2019, 2018 and 2017, the Company recognized $1.0 million, $1.1 million and $0.4 million of compensation expense related to stock awards, respectively. Unamortized share-based compensation expense as of December 29, 2019 amounted to $1.8 million which is expected to be recognized over the next 2.7 years.
The following assumptions were used to estimate the fair value of share options and restricted stock for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Weighted-average fair value of awards
|
$
|
6.12
|
|
|
$
|
12.27
|
|
|
$
|
3.94
|
|
|
Weighted-average risk-free interest rate
|
2.3
|
|
%
|
2.7
|
|
%
|
1.8
|
|
%
|
Weighted-average dividend yield
|
$
|
1.18
|
|
|
$
|
1.04
|
|
|
$
|
1.00
|
|
|
Weighted-average volatility factor
|
42.6
|
|
%
|
42.3
|
|
%
|
43.2
|
|
%
|
Weighted-average expected life
|
10.0
|
|
yrs
|
8.6
|
|
yrs
|
6.0
|
|
yrs
|
A summary of stock option and restricted stock activity is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Remaining Contractual Life
|
|
Total Intrinsic Value of Options
(in thousands)
|
Awards outstanding at December 25, 2016
|
|
678,411
|
|
|
$
|
8.95
|
|
|
7.8
|
|
$
|
4,511
|
|
Granted
|
|
128,000
|
|
|
$
|
16.76
|
|
|
|
|
|
Exercised
|
|
(28,800
|
)
|
|
$
|
7.71
|
|
|
|
|
|
Forfeited / Canceled
|
|
(12,200
|
)
|
|
$
|
11.00
|
|
|
|
|
|
Awards outstanding at December 31, 2017
|
|
765,411
|
|
|
$
|
10.27
|
|
|
7.3
|
|
$
|
4,521
|
|
Granted
|
|
217,000
|
|
|
$
|
20.73
|
|
|
|
|
|
Exercised
|
|
(163,338
|
)
|
|
$
|
10.47
|
|
|
|
|
|
Forfeited / Canceled
|
|
(292,088
|
)
|
|
$
|
6.71
|
|
|
|
|
|
Awards outstanding at December 30, 2018
|
|
526,985
|
|
|
$
|
16.49
|
|
|
7.7
|
|
$
|
2,932
|
|
Granted
|
|
138,750
|
|
|
$
|
21.49
|
|
|
|
|
|
Exercised
|
|
(48,190
|
)
|
|
$
|
10.25
|
|
|
|
|
|
Forfeited / Canceled
|
|
(34,700
|
)
|
|
$
|
14.39
|
|
|
|
|
|
Awards outstanding at December 29, 2019
|
|
582,845
|
|
|
$
|
18.32
|
|
|
7.5
|
|
$
|
2,793
|
|
|
|
|
|
|
|
|
|
|
Awards exercisable at December 30, 2018
|
|
238,085
|
|
|
$
|
13.96
|
|
|
7.2
|
|
$
|
1,684
|
|
Awards exercisable at December 29, 2019
|
|
313,645
|
|
|
$
|
16.05
|
|
|
6.8
|
|
$
|
1,991
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Grant Date Fair Value
|
Non-vested outstanding at December 30, 2018
|
|
288,900
|
|
|
$
|
8.34
|
|
Non-vested outstanding at December 29, 2019
|
|
269,200
|
|
|
$
|
20.96
|
|
For Fiscal 2019, 2018 and 2017, the Company issued 16,777; 49,541, and 5,221 shares of common stock upon the cashless exercise of 39,014; 86,053, and 13,800 stock options, respectively.
Included in awards outstanding are 18,000 and 31,500 shares of restricted stock, at a grant date price per share of $28.61, issued under the 2013 Plan as of December 29, 2019 and December 30, 2018, respectively. For Fiscal 2019, 2018 and 2017, the Company recognized $0.2 million, $0.4 million, and $-0- million of compensation expense related to restricted stock, respectively.
As of December 29, 2019, a total of 838,739 shares remain available for issuance under the 2013 Plan.
Warrant Activity
For Fiscal 2019, 2018 and 2017, the Company did not recognize of compensation cost related to warrants. There was no unamortized stock compensation expense remaining to be recognized as of December 29, 2019.
A summary of warrant activity is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Weighted Average Remaining Contractual Life
|
|
Total Intrinsic Value of Warrants
(in thousands)
|
Warrants outstanding at December 25, 2016 and December 31, 2017
|
|
123,984
|
|
|
$
|
11.51
|
|
|
2.2
|
|
$
|
577
|
|
Exercised
|
|
(30,768
|
)
|
|
$
|
11.27
|
|
|
|
|
|
Warrants outstanding at December 30, 2018
|
|
93,216
|
|
|
$
|
11.59
|
|
|
1.3
|
|
$
|
805
|
|
Exercised
|
|
(28,734
|
)
|
|
$
|
6.55
|
|
|
|
|
|
Warrants outstanding at December 29, 2019
|
|
64,482
|
|
|
$
|
13.84
|
|
|
0.8
|
|
$
|
473
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at December 30, 2018
|
|
93,216
|
|
|
$
|
11.59
|
|
|
1.3
|
|
$
|
805
|
|
Warrants exercisable at December 29, 2019
|
|
64,482
|
|
|
$
|
13.84
|
|
|
0.8
|
|
$
|
473
|
|
There were no non-vested warrants outstanding at December 29, 2019 and December 30, 2018.
For Fiscal 2019, 2018 and 2017, the Company issued 20,059; 16,623 and -0- shares of common stock upon the cashless exercise of 28,734; 30,768 and -0- warrants, respectively.
The intrinsic value in the tables above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options or warrants, before applicable income taxes and represents the amount holders would have realized if all in-the-money options or warrants had been exercised on the last business day of the period indicated.
NOTE 15 - RELATED PARTY TRANSACTIONS
Some of our equity owners are also principals of Taglich Brothers. The Company paid fees to Taglich Brothers related to one equity transaction in 2018 (see Note 13).
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - TEAM MEMBER BENEFIT PLAN
The Company provides a defined contribution plan (the “401(k) Plan”) for the benefit of its eligible team members and field talent. The 401(k) Plan allows participants to make contributions subject to applicable statutory limitations. The Company matches participants contributions 100% up to the first 3% and 50% of the next 2% of a team member or field talent's compensation. The Company contributed $1.1 million, $1.1 million and $0.9 million to the 401(k) Plan for Fiscal 2019, 2018 and 2017, respectively.
NOTE 17 - BUSINESS SEGMENTS
The Company operates within three industry segments: Real Estate, Professional, and Light Industrial. The Real Estate segment provides office and maintenance field talent to various apartment communities and commercial buildings in 29 states, via property management companies responsible for the apartment communities' and commercial buildings' day-to-day operations. The Professional segment provides skilled field talent on a nationwide basis for IT and finance, accounting, legal and human resource client partner projects. The Light Industrial segment provides field talent primarily to manufacturing, distribution, logistics, and call center client partners needing a flexible workforce in 7 states.
Segment operating income includes all revenue and cost of services, direct selling expenses, depreciation and amortization expense and excludes all general and administrative (home office) expenses. Assets of home office include cash, unallocated prepaid expenses, deferred tax assets, and other assets.
The following table provides a reconciliation of revenue and operating income by reportable segment to consolidated results for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Revenue:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
96,421,676
|
|
|
$
|
86,874,241
|
|
|
$
|
71,806,700
|
|
Professional
|
|
123,342,647
|
|
|
119,299,424
|
|
|
126,641,358
|
|
Light Industrial
|
|
74,549,225
|
|
|
80,689,261
|
|
|
74,151,992
|
|
Total
|
|
$
|
294,313,548
|
|
|
$
|
286,862,926
|
|
|
$
|
272,600,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
197,029
|
|
|
$
|
169,682
|
|
|
$
|
109,085
|
|
Professional
|
|
341,529
|
|
|
273,691
|
|
|
179,809
|
|
Light Industrial
|
|
101,889
|
|
|
101,124
|
|
|
106,867
|
|
Home office
|
|
189,852
|
|
|
201,946
|
|
|
196,556
|
|
Total
|
|
$
|
830,299
|
|
|
$
|
746,443
|
|
|
$
|
592,317
|
|
|
|
|
|
|
|
|
Amortization:
|
|
|
|
|
|
|
|
|
Professional
|
|
$
|
3,964,878
|
|
|
$
|
4,168,463
|
|
|
$
|
5,378,992
|
|
Light Industrial
|
|
—
|
|
|
110,251
|
|
|
312,054
|
|
Home office
|
|
25,079
|
|
|
19,330
|
|
|
8,595
|
|
Total
|
|
$
|
3,989,957
|
|
|
$
|
4,298,044
|
|
|
$
|
5,699,641
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
Real Estate
|
|
$
|
16,381,823
|
|
|
$
|
14,775,846
|
|
|
$
|
11,553,163
|
|
Professional
|
|
7,702,175
|
|
|
7,967,368
|
|
|
8,518,293
|
|
Light Industrial
|
|
4,776,369
|
|
|
5,583,999
|
|
|
4,304,018
|
|
Home office - selling
|
|
(516,190
|
)
|
|
(666,472
|
)
|
|
(541,160
|
)
|
Home office - general and administrative
|
|
(8,682,689
|
)
|
|
(7,176,363
|
)
|
|
(6,299,289
|
)
|
Home office - gain on contingent consideration
|
|
—
|
|
|
3,775,307
|
|
|
225,743
|
|
Total
|
|
$
|
19,661,488
|
|
|
$
|
24,259,685
|
|
|
$
|
17,760,768
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Capital Expenditures:
|
|
|
|
|
|
|
Real Estate
|
|
$
|
251,461
|
|
|
$
|
124,643
|
|
|
$
|
139,309
|
|
Professional
|
|
582,573
|
|
|
474,670
|
|
|
564,987
|
|
Light Industrial
|
|
152,632
|
|
|
119,886
|
|
|
53,969
|
|
Home office
|
|
1,242,843
|
|
|
204,795
|
|
|
387,492
|
|
Total
|
|
$
|
2,229,509
|
|
|
$
|
923,994
|
|
|
$
|
1,145,757
|
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
16,785,163
|
|
|
$
|
12,647,505
|
|
|
|
Professional
|
|
72,623,242
|
|
|
62,403,104
|
|
|
|
Light Industrial
|
|
15,223,581
|
|
|
16,022,618
|
|
|
|
Home office
|
|
10,954,058
|
|
|
9,195,576
|
|
|
|
Total
|
|
$
|
115,586,044
|
|
|
$
|
100,268,803
|
|
|
|
NOTE 18 - QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Fiscal
Year
|
Revenues
|
$
|
68,776,067
|
|
|
$
|
73,857,890
|
|
|
$
|
79,364,306
|
|
|
$
|
72,315,285
|
|
|
$
|
294,313,548
|
|
Gross Profit
|
$
|
18,438,640
|
|
|
$
|
20,862,834
|
|
|
$
|
22,176,622
|
|
|
$
|
19,203,169
|
|
|
$
|
80,681,265
|
|
Income before income taxes
|
$
|
3,233,471
|
|
|
$
|
4,924,649
|
|
|
$
|
5,540,959
|
|
|
$
|
3,852,889
|
|
|
$
|
17,551,968
|
|
Net income
|
$
|
2,496,024
|
|
|
$
|
3,801,829
|
|
|
$
|
4,207,170
|
|
|
$
|
2,741,967
|
|
|
$
|
13,246,990
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.24
|
|
|
$
|
0.37
|
|
|
$
|
0.41
|
|
|
$
|
0.27
|
|
|
$
|
1.29
|
|
Diluted
|
$
|
0.24
|
|
|
$
|
0.37
|
|
|
$
|
0.41
|
|
|
$
|
0.26
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
10,229,462
|
|
|
10,232,588
|
|
|
10,239,126
|
|
|
10,253,085
|
|
|
10,238,565
|
|
Diluted
|
10,404,355
|
|
|
10,362,038
|
|
|
10,343,673
|
|
|
10,370,996
|
|
|
10,350,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Fiscal
Year
|
Revenues
|
$
|
66,855,470
|
|
|
$
|
70,945,438
|
|
|
$
|
77,062,137
|
|
|
$
|
71,999,881
|
|
|
$
|
286,862,926
|
|
Gross Profit
|
$
|
17,309,931
|
|
|
$
|
19,192,279
|
|
|
$
|
21,373,025
|
|
|
$
|
18,719,957
|
|
|
$
|
76,595,192
|
|
Income before income taxes
|
$
|
3,164,213
|
|
|
$
|
5,835,370
|
|
|
$
|
6,429,644
|
|
|
$
|
5,980,053
|
|
|
$
|
21,409,280
|
|
Net income
|
$
|
2,465,571
|
|
|
$
|
5,169,884
|
|
|
$
|
5,061,386
|
|
|
$
|
4,852,700
|
|
|
$
|
17,549,541
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.28
|
|
|
$
|
0.56
|
|
|
$
|
0.50
|
|
|
$
|
0.48
|
|
|
$
|
1.83
|
|
Diluted
|
$
|
0.27
|
|
|
$
|
0.54
|
|
|
$
|
0.49
|
|
|
$
|
0.47
|
|
|
$
|
1.79
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
8,761,292
|
|
|
9,235,353
|
|
|
10,109,791
|
|
|
10,184,652
|
|
|
9,577,498
|
|
Diluted
|
9,087,016
|
|
|
9,538,545
|
|
|
10,342,559
|
|
|
10,365,117
|
|
|
9,808,080
|
|
BG Staffing, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - SUBSEQUENT EVENTS
EdgeRock Technology Holdings, Inc.
On February 3, 2020, the Company acquired 100% of the equity of EdgeRock for a purchase price of $21.6 million cash, subject to customary purchase price adjustments as specified in the purchase agreement. The purchase price at closing was paid out of currently available funds under the Company’s credit agreement led by BMO. The acquired business was assigned to the Professional segment.
The acquisition of EdgeRock allows the Company to strengthen its operations in specialized IT consultants and technology professionals specialized in leading software and data ecosystems, as well as expand its IT geographic operations with offices in Florida and Arizona. As the transaction was recently completed, the initial accounting for the acquisition, including estimating the fair values of assets and liabilities acquired, has not been completed.
Debt
In connection with the acquisition of the assets of EdgeRock described above, on February 3, 2020, the Company borrowed $18.5 million on the Term Loan under the Company's credit agreement led by BMO, as described in Note 10 above.
Dividend
On January 30, 2020, the Company's board of directors declared a cash dividend in the amount of $0.30 per share of common stock to be paid on February 18, 2020 to all shareholders of record as of the close of business on February 10, 2020.